The carnage continues

After Lehman's collapse and Merrill Lynch's surrender to Bank of America, now Morgan Stanley is up for sale.

Last Updated: 31 Aug 2010

Is this the end of investment banking as we know it? Morgan Stanley – one of only two independent I-banks left on Wall Street – is in merger talks with both US Wachovia and Chinese CIC having put itself up for sale after brutal trading slashed 24% off its share price yesterday. Even the mighty Goldman Sachs – home to the smartest of the ‘smarts’ - is looking vulnerable now; its shares crashed another14% yesterday. So the only investment bank that seemed to have kept its nose clean in the credit crunch now stands alone and battered amidst the wreckage of what was, until a few days ago, one of the most lucrative industries in the world.

One unnamed senior figure quoted in The Times this morning gives a flavour of I-bankers’ feelings at the moment – what would be called sentiment if it were his clients talking rather than the banker himself. ‘The world is on the brink. The market is puking all over us. There’s no capital left in the world.’ Hmm - no doubt it’s hard to maintain a sense of perspective when you’re staring down the barrel of imminent unemployment with only a few million in the bank and a pile of worthless share options between you and the poor house.

Central banks all over the globe – including the Fed and Bank of England - have been pumping money into the markets overnight to ease the funding crisis. $180bn in total – that’s three time the net worth of the world’s richest man, Warren Buffet, who incidentally predicted that the ‘toxic’ derivatives and securitised debt market would eventually lead us all to hell in a hand cart back in 2002. Good call Saint Warren, shame nobody really paid much attention at the time.

Here in Blighty, the  £12bn takeover of HBOS by LloydsTSB has been broadly welcomed as the least worst available option, although the creation of a megabank with over 30% retail market share does present its own potential structural problems. And then there’s the small matter of a predicted 40,000 job losses and the drying up of what little mortgage availability remains as the new combine reins in HBOS’s aggressive loans-to-deposit ratio of getting on for 2:1.

It’s hard to feel much in the way of sympathy for those former financial titans who are the architects of this current calamity, as the BBC’s Jeremy Paxman demonstrated with his comment on Monday’s collapse of Lehman Brothers. ‘It’s hard to call yourself a master of the universe when you’re leaving the office clutching a cardboard box full of your possessions.’ But that doesn’t mean we should welcome their wholesale demise quite so gleefully. After all, it’s our money they’ve been spending.

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